A top accounting guru’s compelling new measure for profitability
A big challenge for investors is piercing management's feel-good, “it's all great if you leave out the bad stuff” earnings metrics to measure a company's true profitability. According to Shawn Tully, senior editor-at-large for Fortune, one accounting guru has a new way for businesses to overcome that challenge.
“Jack Ciesielski, author of The Analyst's Accounting Observer, a newsletter prized by asset managers that skillfully demystifies accounting issues, has developed a fresh measure of profitability,” Tully wrote yesterday. “His goal is to provide a clear view of managers' success in investing the capital entrusted to them by shareholders. He calls it ‘COROA,’ for cash operating return on assets. The idea is to measure management's ability to generate pure cash returns, not cash expected in the future, on every dollar invested in plants, R&D centers, inventories, and all other assets.”
In the February 25 edition of his newsletter, Ciesielski wrote, “It makes sense for an investor to look at a firm’s cash generation ability, relative to the cash invested in it.”
For Ciesielski, it’s all about cash. “What’s more important in the world than cash?” he asks. “Why, it’s more cash, of course.”
US companies cling to writing paper checks
Vipal Monga, senior editor for the Wall Street Journal’s CFO Journal, reported yesterday that businesses in the United States still pay half of their bills by check, according to a September survey by the Association for Financial Professionals. That's down from 74 percent in 2007, but the rate of decline has slowed, suggesting stubborn barriers to change.
But according to Bank of America, using the check system comes with a price. It estimates that a business check can cost an aggregate of $4 to $20, based on the price of the check and shipping, plus the time employees spend writing, mailing, collecting, and reconciling the check, Monga wrote.
And while it's easy to drop a check in the mail, checks are a burden on the economy. Simply issuing and depositing checks cost US businesses between $26 billion and $54 billion in 2010, according to MineralTree Inc., an electronic-payments company.
The challenge of linking Dewey’s leader to possible accounting shenanigans
Peter J. Henning, a professor at Wayne State University Law School and co-author of Securities Crimes (2nd edition), wrote an article for the New York Times yesterday on the government’s challenge of finding enough evidence to link former Dewey & Leboeuf chairman Steven Davis to accusations that accounting tricks were used to cover up the law firm’s deteriorating financial position.
“Proving larceny under New York law requires showing that the defendant acted with specific intent to steal property with a value of over $1 million,” the article stated. “That means the prosecution must show more than just recklessness, but an awareness that the accounting misstatements were designed to deprive the victims of their money.”
Henning said the law firm’s leaders seemed to have ignored the maxim to never put anything about questionable conduct in writing, but according to company e-mails, Davis does not appear to be as deeply involved in the financial maneuvers as others at the firm.
“In one e-mail exchange, when informed on December 30, 2008, that the firm was $50 million short of meeting a year-end covenant for its bank loan, Mr. Davis responded, ‘Ugh.’ That is rather tame compared to what was probably going through his mind, but does not show much intent to engage in accounting shenanigans,” Henning wrote.
Accounting, valuation leaders collaborate on fair value
Tammy Whitehouse of Compliance Week wrote today that the International Accounting Standards Board (IASB) and the International Valuation Standards Council (IVSC) have issued a “statement of protocols” to cooperate on fair value rules.
The agreement is intended to ensure the groups cooperate on fair value issues, with each board remaining autonomous, to work toward consistent measurement of fair value as it is used under International Financial Reporting Standards (IFRS), according to the article.
“The joint statement of protocols spells out a common understanding of how the IASB and IVSC currently cooperate in developing standards and guidance on fair value, and it identifies ways the groups can work together going forward,” Whitehouse wrote. “Both groups have committed to provide input to one another on their respective standard-setting activities and consider one another's input as they set their own standards.”
[The Financial Accounting Standards Board (FASB) responded yesterday to a review of its fair value rules. Click here to read AccountingWEB’s article.]
Issa: Lerner misled Congress
Lois Lerner, the former IRS official at the center of the agency’s targeting controversy, made several false or misleading statements to Congress about her role in scrutinizing Tea Party groups, according to a new report from congressional Republicans, Bernie Becker of The Hill reported this morning.
The report from the House Oversight Committee, which under Chairman Darrell Issa (R-CA) has aggressively pursued and stoked the IRS controversy, uses Lerner’s own e-mails and statements to make the case that Lerner personally directed the inappropriate attention given to conservative groups – all while trying to maintain the appearance of being impartial, Becker wrote.
“She created unprecedented roadblocks for Tea Party organizations, worked surreptitiously to advance new Obama administration regulations that curtail the activities of existing 501(c)(4) organizations – all the while attempting to maintain an appearance that her efforts did not appear, in her own words, ‘per se political,’” the report stated, according to the article.
In IRS scandal, begging is not an action plan
Jonathon Moseley of American Thinker wrote this yesterday about the IRS targeting scandal: “[T]he conservative response to the IRS scandal consists mainly of begging the US Department of Justice to investigate and prosecute and begging the IRS to start playing nice by releasing information implicating its own staff in wrongdoing and perhaps criminal violations. Like that’s gonna happen.
“Begging is not a plan of action. As a lawyer, the author must point out that lawyers leading conservative organizations are failing to implement the proven techniques already developed by Judicial Watch when Bill Clinton was president. The ‘whine and cheese party’ is not the right way to achieve the results that justice demands. And all Americans are at risk from how this is being handled.”
Dave Camp makes life difficult for Paul Ryan
Most House Republicans wanted nothing to do with Ways and Means Committee Chairman Dave Camp’s (R-MI) tax reform proposal when he unveiled it last month. But their annual budget is due next month, and Republicans are wrestling over what to do with their chief tax writer’s wildly controversial proposal as they write their 2015 tax-and-spending manifesto, Brian Faler of Politico wrote today.
“They are in a tight spot: budget panel chair Paul Ryan [R-WI] has been promising a tax overhaul for three years, and if they continue to blithely promise reform while ignoring the difficult choices laid out in Camp’s proposal, Democrats will surely pounce,” the article stated.
According to Faler, Democrats are watching closely to see how Republicans deal with Camp’s tax reform plan.
“Mr. Ryan is going to have a very difficult time,” said House Minority Whip Steny Hoyer (D-MD), according to the article.
If Camp’s tax reform bill won’t pass, why is it so important?
That’s the question asked by Forbes contributor Martin Sullivan in an article yesterday.
“The Camp discussion draft has changed the tax policy landscape like no other single document in the last three decades, for two reasons,” he wrote. “First, it has burst the bubble of all the feel-good tax reformers who have been wasting our time promoting unrealistic tax plans. The Camp plan is the ultimate reality check on tax reform. It is far more complicated and painful than marketers of tax reform have told the public to expect. It is unlikely that any realistic tax reform would be any shorter or sweeter than the Camp draft.
“The second reason the Camp reform is monumentally important is the extensive and detailed workmanship that went into it,” Sullivan continued. “With input from hundreds of experts who deal daily with the realities of modern tax practice, the experienced and highly expert staffs of the Ways and Means Committee and the Joint Committee on Taxation worked for three years on the draft. This was not an academic exercise. With feet firmly planted in the real world, taking into account practical administrative and political considerations, they have made hundreds of detailed suggestions on how to improve the code.”